As iPhone Users Curse AT&T, Extension Deal Up in Air

Analysts differ on Apple's next move: extend AT&T's deal or open the iPhone to multiple carriers.

Much to the chagrin of iPhone owners, market researcher iSuppli predicted last week that Apple will extend AT&T's iPhone exclusivity contract past the current deal's June 2010 expiration date rather than open up the iPhone to other carriers such as Verizon.

"The main reason Apple is likely to stick with AT&T beyond 2010 is the relatively wide usage and growth expected for the HSPA (high-speed packet access) air standard used by the carrier for 3G data," says iSuppli analyst Francis Sideco.

According to iSuppli, global subscribers of HSPA wireless services, which includes high speed downlink packet access (HSDPA) and high-speed uplink packet access, are expected to rise to 1.4 billion in 2012 from 269 million this year. The rise of EVDO, or evolution data only, a high-speed wireless broadband standard used by Verizon, isn't nearly as sharp. The number of EVDO subscribers should double from 145 million this year to 304 million in 2013, iSuppli says.

[ Amid cheers, three iPhone 3GS concerns surface, reports CIO. ]

Yet not everyone takes the same point of view. iSuppli's prediction that Apple will extend AT&T's iPhone exclusivity deal stands in stark contrast to Piper Jaffray analyst Gene Munster's research note late last month. Munster wrote, "We expect Apple to add new iPhone carriers in the U.S. within the next year (likely with a new product launch)."

Munster cites Apple's move away from French wireless carrier Orange's exclusive iPhone deal to a multi-carrier model as proof that Apple will do the same in the U.S. "We're seeing the increased unit sell-through more than offset the slightly deteriorated economics per unit involved in non-exclusive agreements," Munster wrote.

AT&T's iPhone exclusivity deal has been both a blessing and a curse for the wireless carrier.

On the AT&T upside, the wireless carrier has some 9 million iPhone customers who can't go to another carrier. These customers pay on average $100 a month - a higher revenue per user than is typical with other mobile devices. Of course, AT&T reportedly pays Apple a subsidy of $400 per phone. All tallied, an iPhone customer generates almost $2,000 in revenue for AT&T during a two-year subscription.

But the iPhone has wreaked havoc on AT&T's network and image. Forrester reports that working iPhone owners are more than twice as likely to access the Internet from their phone as working BlackBerry, Palm, or Windows Mobile device owners. The pressure that the iPhone has put on AT&T's data network has led to spotty coverage and slow connections in major cities.

AT&T has been busily making network improvements, but the work is far from complete. The iPhone 3GS works on the fast HSDPA network, yet AT&T will only begin rolling out this network technology later this year.

AT&T delayed supporting iPhone capabilities such as MMS and tethering, due mainly to concerns about the additional load they'll out on the network, although MMS is expected to be delivered—finally—on September 25. Meanwhile, tethering is expected later this year, as AT&T works out a way to price the service.

All of this has led to an AT&T backlash. According to a survey by RBC/IQ ChangeWave, 99 percent of 200 respondents were either satisfied or very satisfied with their iPhone 3GS, yet the number one gripe is the AT&T network. The FCC is also looking into the relationship between AT&T and Apple and their deal to block the Google Voice iPhone app.

Should Apple extend the iPhone exclusivity deal with AT&T? Send me an email at tkaneshige@cio.com. Or follow me on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline.

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